Unpaid Medical Bills - Medical Collections under HIPAA

Unpaid Medical Bills - Medical Collections under HIPAA

HIPAA may protect you when it comes to unpaid medical bills. The HIPAA law protects patient privacy, including third-party debt collectors accessing your information.

In a 2020 survey by the Kaiser Family Foundation, a non-profit organization focusing on national health issues, about one-quarter of U.S adults (26%) said they or a household member had past-due medical bills in the past year.

Further, a study published in JAMA in 2021 found that in June 2020, an estimated 18% of U.S. individuals had medical debt in collections.

Unpaid medical bills are often placed with a collection agency without prior notification. Often, a doctor or hospital will assign the debt to a third-party debt collector after an insurance payment without ever billing the patient. 

There's no good reason why this happens other than poor accounting habits. A patient should have the right to be notified about a balance before it hits their credit reports as a collection account and ruins their credit rating.

In recent years, the federal government has made it harder for a medical provider to ruin your credit. Updates by the Big Three allow you six months to negotiate and review your medical bills before the provider can ship them off to the collection agencies. This will decrease the number of people blindsided by medical bills that suddenly appear on their credit reports.

The three major credit bureaus—Experian, Equifax, and TransUnion—instituted a change requiring a 180-day waiting period before medical debt is added to consumer credit reports. 

HIPAA Compliance in Debt Collection

Understanding HIPAA in the Context of Medical Debt Collection

The Health Insurance Portability and Accountability Act (HIPAA) is a critical piece of legislation in the United States that has significant implications for collecting medical debts. HIPAA was enacted in 1996 primarily to protect the privacy and security of patient health information. When it comes to debt collection, HIPAA's regulations intersect with the practices of healthcare providers, debt collectors, and credit reporting agencies, ensuring that patients' privacy is not compromised during the debt collection process.

The Role of HIPAA in Protecting Patient Information

HIPAA sets strict standards for how healthcare providers and their business associates, including debt collection agencies, handle personal health information (PHI). Under HIPAA, PHI includes any information about health status, provision of healthcare, or payment for healthcare that can be linked to an individual. This means that when a medical debt is transferred to a collection agency, the agency must handle the debtor's information in a manner that complies with HIPAA's privacy rules.

Compliance Requirements for Debt Collectors

Debt collectors working with medical debts must be particularly cautious. They are required to:

1. Limit Disclosure of PHI: Debt collectors can only use or disclose the minimum necessary PHI required to perform their job. This means avoiding disclosing specific medical treatments, diagnoses, or other sensitive health information.

2. Secure Communication: Any PHI communication must be secured to prevent unauthorized access. This includes both digital and physical forms of communication.

3. Business Associate Agreements (BAAs): Collection agencies must have a signed BAA with the healthcare provider. This agreement outlines the responsibilities of the debt collector in protecting PHI.

4. Training and Policies: Agencies must have policies and procedures in place to ensure compliance with HIPAA. Regular training for employees is essential to stay updated on HIPAA regulations.

Impact on Credit Reporting

Debt collectors and healthcare providers must also consider HIPAA regulations when reporting medical debts to credit bureaus. They should ensure that the information reported does not violate the patient's privacy rights under HIPAA. For instance, the specific details of the medical service provided should not be disclosed in the debt report.

Consumer Rights Under HIPAA

Patients have specific rights under HIPAA that are relevant in the context of debt collection:

• Right to Access: Patients have the right to access their health information, which can be crucial when disputing a medical debt.

• Right to Request Confidential Communications: Patients can request that communications from healthcare providers and debt collectors be sent to them in a specific manner or at a different location to ensure privacy.

• Right to File Complaints: If patients believe their rights have been violated, they can file a complaint with the U.S. Department of Health and Human Services.

Challenges and Best Practices

Navigating HIPAA compliance in medical debt collection presents challenges. Debt collectors must balance the need to collect debts with the requirement to protect patient privacy. Best practices include:

• Regular Compliance Audits: Regularly reviewing and auditing practices to ensure they align with HIPAA requirements.

• Clear Communication: Communicating clearly with patients about their debts while respecting their privacy rights.

• Collaboration with Healthcare Providers: Working closely with healthcare providers to ensure that information transfer complies with HIPAA.

HIPAA compliance in debt collection is a critical aspect of managing medical debts. It requires a careful balance between effective debt collection practices and the stringent protection of patient privacy. By adhering to HIPAA regulations, debt collectors comply with the law and contribute to maintaining the trust and confidentiality essential in the healthcare sector. As the landscape of healthcare and privacy laws continues to evolve, staying informed and compliant with HIPAA is more crucial than ever for all parties involved in medical debt collection.

Will unpaid medical bills under $500 be reported to my credit report
& other new credit laws for medical debt

Update as of September 2023: A newly proposed federal rule by the Consumer Financial Protection Bureau (CFPB) would remove all medical debt from credit reports and restrict its use by most creditors.

The CFPB's proposed rule would:

• Prohibit consumer reporting companies from including any medical debt and collection information on reports that lenders would use for underwriting decisions.

• Restrict creditors from using medical collection data when evaluating borrowers’ creditworthiness.

• Ban debt collectors from using the credit reporting system to pressure consumers into paying “questionable” medical debts.

The proposed rule is still in the early stages and must go through public comment and a formal rulemaking process, which could take a year or more. If finalized, the rule would be a significant victory for consumers with medical debt, which can have a devastating impact on credit scores and financial well-being.

Additional Information

• The CFPB estimates that about 20% of U.S. households have medical debt on their credit reports.

• Medical debt is the most common type of debt in collections.

• A 2022 study by the CFPB found that medical debt has little predictive value in credit decisions.

• The Biden administration has supported the CFPB's proposal, and Vice President Kamala Harris has joined CFPB Director Rohit Chopra in calling for the removal of medical debt from credit reports.

Why is this important?

Medical debt is a major financial burden for millions of Americans. It can make getting a loan, rent an apartment, or even get a job difficult. The CFPB's proposed rule would help consumers with medical debt improve their credit scores and get back on their feet financially.

**As of July 2022 and in 2023, medical debt under $500 will no longer be included in your credit reports, and new rules apply to reporting medical debt to your credit reports**

1. Your credit reports will no longer include Paid medical collection bills as of July 1, 2022. 

2. The period before unpaid medical debt collection will appear on a consumer’s report will be increased from six months to one year. This change gives consumers more time to work with insurance and healthcare providers to address medical collection debt before it appears on credit reports.

3. Credit reports will no longer include medical debt collection accounts under $500. This goes into effect in the first half of 2023.

Should I pay off a medical debt that is on my credit report?

Simply paying the debt won't do much to raise your credit score if a collection agency has reported a medical bill over $500 to your credit report.

Unless you've already disputed the debt (with good cause) with the credit bureaus and collection agency, paying the debt will do nothing more than turn it into a "paid collection." We cannot stress this enough. A "paid collection account" is the last resort. Ultimately, you want to negotiate complete deletion in exchange for payment.

Unlike original creditors, collection agencies often remove accounts in exchange for payment because they only use your credit rating as leverage to collect payments. Once they get the money, they don’t care about hanging your credit rating over you. Use their desire for money to leverage a settlement to exchange money for deletion.

How many points do unpaid medical bills affect your credit?

The exact number of points by which unpaid medical bills will affect your credit score can vary widely based on various factors, including your current credit score, the amount of the debt, and how long it has gone unpaid. However, any unpaid bill can cause a significant drop in your credit score, especially if reported to the credit bureaus.

If your unpaid medical bills are turned over to a collection agency and that agency reports the debt to the credit bureaus, it could lead to a serious drop in your score. Some consumers might see their scores drop by 50 to 100 points.

As of September 2021, most newer credit scoring models, such as FICO 9 and VantageScore 3.0 and 4.0, don't weigh medical collections as heavily as other types of debt, and they ignore medical collections that are less than 180 days old. However, not all lenders use these newer models.

It's also worth noting that unpaid medical bills over $500 can continue to harm your credit for as long as they remain on your credit report. Negative items typically stay on your credit report for seven years. 

How long does a medical debt remain on my credit report?

Seven years is how long the medical debt will stay on your credit report unless you dispute it. Medical debts are often older or harder to verify, which can lead to their total deletion from your credit history. 

When a medical provider sells the debt to a third-party collection agency, they typically only send a summary of the amount owed.  There is very little information for the debt collector to be able to prove to you that the debt is valid. Some agencies will take the time to ask the original medical provider for records to prove the debt is valid, but some will not, especially on balances under $1,000.00.

It becomes even more difficult for second- and third-placement debts where the debt has been sold two and three times. The record trail becomes harder to trace, and your odds of getting it removed improve.

With HIPAA, patients will have more privacy with 3rd party debt collectors

Healthcare providers are required to follow HIPAA regulations. HIPAA regulations are designed to protect the privacy of all individuals who have access to health information.

HIPAA is a US federal law that protects the privacy of patient information. The Health Insurance Portability and Accountability Act (HIPAA) was enacted in 1996 to protect the privacy of health data, and it was amended in 2009 to include additional protection for personal data. The purpose of HIPAA is to ensure that medical records are unavailable to people who do not need them, such as employers, bill collectors, or insurance companies.

Medical debt collections may have become more challenging because of privacy rules and medical laws. The HIPAA privacy rule requires a "business associate" (collection agency or billing firm) to reasonably limit the amount of information disclosed for such purposes to the minimum necessary and to abide by reasonable requests for confidential communications. 

This could be a loophole for debtors against collection agencies because collection employees often know less about their industry restrictions than the debtor. This could lead to privacy and HIPAA violations, and case law supports such violations. 

If collection agency employees are not careful, they could miss out on collecting debts by inadvertently knowing too much about the debtor's medical condition. Without a doubt, this will cause many patients to request that the medical provider cancel their debts to avoid potential lawsuits against the provider. 

Debtors who know how to protect themselves will use this provision to threaten collectors and gain the upper hand in settling the medical debt without it hitting their credit reports. Debtors who discover that the collector knows their diagnosis and treatment will threaten the agency, claiming their privacy has been violated. 

The agency, wanting to avoid unnecessary lawsuits, will most likely agree to remove the negative entry on the consumer's credit report by agreeing to settle on such terms. The debtor will gain a clearer credit report by having the item removed rather than listed as "paid collection."

An unpaid medical bill on your credit report can seriously affect your credit score. Unpaid medical bills are a negative rating in your credit history. Unfortunately, we don’t know they're unpaid until they've landed in debt collections and show up on our credit reports.

It makes less sense to pay it by that time because the harm to your credit score has already happened. If this happens to you, you must negotiate your credit rating with the bill collector before you pay or promise to pay. If you don’t, you could renew the statute of limitations, determining how long the medical bill is collectible.

Filing a HIPAA complaint

If you believe that your privacy about your medical history has been unlawfully accessed, you can file a HIPAA complaint. You can read about filing a complaint about HIPAA (Health Insurance Portability and Accountability Act). HIPAA prohibits any retaliation against you. Under HIPAA, an entity cannot retaliate against you for filing a complaint. Follow this link to learn about HIPAA and privacy in text messages.

Can you go to jail for medical debt?

No, you cannot go to jail for medical debt. Medical debt is a civil debt, and it is illegal to threaten you with jail time for your debt. You can, however, be forced to go to court if you do not pay your medical bills. It is important to respond to any court summons; otherwise, a default judgment could be entered against you.

In one bizarre case, there is a small town where an attorney for medical providers regularly calls for debtor exams in court, and if the debtor does not show up, he asks for bench warrants to arrest the debtor. Some small towns in the United States allow for these debtor exams, and ignoring that could lead to arrest, but the debt itself would not land you in jail. Many debt collection agencies have used the threat of jail against debtors in phone conversations to intimidate them, which is illegal.

Do medical providers report a debt to the credit bureaus?

Typically not. It is doubtful that a medical provider would report debts to the credit bureaus because they refer them to collection agencies, which use debt reporting as leverage. 

Outrageous medical bills often lead to bankruptcy

Medical debt is a growing problem in the United States, affecting over 100 million people. With the increasing healthcare costs and the lack of financial resources available to many families, medical debt can become overwhelming and lead to bankruptcy. The research found that an estimated 100 million adults go bankrupt yearly because of medical issues and bills.

In addition, a study published in February 2019 estimates that 9% of adults in the US—roughly 23 million people—owe more than $250 due to health costs. Bankruptcy is often seen as the last resort for many Americans who cannot pay their medical debt or hospitals and as a way out of debt harassment.

Since medical debt is unsecured and not a priority, it can easily be included in bankruptcy to eliminate the amount owed. Bankruptcy will not improve your credit reports but will stop debt collectors.

What are Medical credit cards?

Medical credit cards are financial tools that are marketed to patients as a means to help them manage their medical expenses. Healthcare providers and financial institutions typically offer these cards. They provide patients with a convenient payment option by allowing them to spread the cost of medical treatments over time.

However, medical credit cards can have significant financial implications for patients. One of the key concerns is the high interest rates associated with these cards. If patients fail to pay off their balance within a promotional period or miss a payment, they can be subject to steep interest charges. This can lead to an accumulation of debt and financial strain for individuals already facing medical expenses.

Late fees and retroactive interest charges are additional financial burdens patients may face when using medical credit cards. These fees can quickly add up and make it even more challenging for patients to pay off their medical bills.

Moreover, including medical debt on credit reports can have long-term consequences for patients. High levels of medical debt can negatively impact individuals' credit scores, making it difficult for them to obtain credit in the future. This can affect their ability to secure loans, mortgages, or employment opportunities.

While medical credit cards may initially seem like a helpful solution to manage healthcare costs, they can place patients at risk of accumulating high debt levels and experiencing financial hardship. The lack of proper regulations and transparency surrounding these cards has raised concerns among advocates who call for protections to prevent patients from falling into further financial distress.

Do I have to pay taxes on unpaid medical debt?

Generally, yes. If the debt is over $600.00, the medical provider will send a 1099-C letter to you, and you have to claim that amount on your tax returns. Because you did not pay the debt, the provider suffered a loss, and you claimed more income by not paying the debt. Even if you did not receive a 1099-C but knew you had debts charged off, the IRS expects you to add it. If the amount is large enough, it would not be worth triggering an IRS audit by trying to hide it.

What if I was a minor when I incurred medical debt?

A minor cannot be responsible for medical debt. If you are under 18, you are not authorized to sign contracts. If a collection agency is hounding you for a medical debt from when you were a minor, immediately cease and desist and demand removal from your credit reports. In addition, you can send proof to the credit bureaus that you are not legally obligated to pay the debt.

What is the impact if the only thing on my credit report is unpaid medical bills?

That’s a problem. A credit report with no positive credit history and only negative items will be useless. Work on removing unpaid medical bills through debt settlement or disputing them with the credit bureaus, and then open a secured credit card to start building your credit. If you have a good payment history with your utilities, see if your bank accepts Experian Boost to start getting those bills reported to your credit report.

Am I responsible for a deceased relative’s medical bills?

Not personally. The medical debts would be part of the deceased person’s estate and paid from that. You would not be liable if the person has no estate and is not your spouse. An exception would be if you signed the medical treatment authorization forms as a responsible party.

What is the No Surprises Act?

The No Surprises Act is a piece of U.S. legislation that protects patients from unexpected, costly medical bills, often called "surprise billing." This typically happens when a patient receives care from an out-of-network provider or facility and is billed for the difference between what their insurance covers and what the provider charges.

Based on the summary, the No Surprises Act has rules and fact sheets covering the types of care and situations the legislation applies to. For a comprehensive understanding of this act, it would be beneficial to visit the linked website. It provides resources that detail the specifics of the policies involved in the No Surprises Act.

While this information should provide a basic understanding of the No Surprises Act, the specifics can be complex. Depending on your circumstances, you may want to consult with a healthcare provider, insurance professional, or legal expert to understand how the Act applies to you.

Medical debt forgiveness programs

1. Charity Care Programs: Many hospitals offer charity care programs where they forgive medical debt for patients who meet certain income requirements. These programs typically apply to uninsured or underinsured patients.

2. Income-Driven Hardship Plans: Some healthcare providers may offer payment plans for those experiencing financial hardship, which might include debt reduction or forgiveness.

3. Nonprofit Organizations: Several non-profit organizations, like RIP Medical Debt and the Patient Advocate Foundation, work to eliminate medical debt for needy individuals.

4. Debt Negotiation: Sometimes, patients or a medical billing advocate can negotiate with healthcare providers or debt collectors to reduce the amount owed.

5. Medicaid: If eligible, this program can retroactively cover medical bills in some states.

6. Bankruptcy: As a last resort, some people may file for bankruptcy to eliminate medical debt. However, this has serious implications for one's financial future and should be considered carefully.

Goodwill letter for medical debt deletion from credit reports

If you made the unfortunate mistake of paying a medical collection without negotiating payment for removal, you could try a goodwill letter as a last resort.

A goodwill letter, also known as a goodwill deletion letter, is a formal request you send to your creditors, asking them to remove a negative mark from your credit report as an act of goodwill. Below is a sample letter that could be used as a template. This sample letter is based on the example provided in the search results and adapted for medical debt.

Remember to tailor this letter to your specific situation, including the details of your debt and the reasons for your request. Also, remember that success is not guaranteed with this approach. Creditors are not obligated to grant this request, but a polite, honest letter can be effective in some situations.

[Your Name]

[Your Address]

[City, State, Zip Code]

[Email Address]

[Today’s Date]

[Collections Agency]

[Their Address]

[City, State, Zip Code]

Re: Account Number: [Your Account Number]

To Whom It May Concern:

I hope this letter finds you well. I am writing to you today regarding the medical debt referenced above. I fully understand the obligations I committed to when receiving medical care, and I deeply regret not being able to meet them as promptly as I had intended.

I have paid this debt in full, but the late payment listed on my credit report for this account is causing me significant difficulties. I am [applying for a loan/trying to refinance my house/etc.], and the negative item on my credit report is hindering my efforts. 

When the late payment occurred, I dealt with [a medical crisis/job loss/other personal situation]. Despite my best efforts, I fell behind on many financial obligations, including this medical bill. 

Since then, I have taken serious measures to ensure my financial stability, including [describe what you have done to improve your financial situation]. 

Given these circumstances, I kindly request that you remove the late payment associated with this account from my credit reports as an act of goodwill. 

This single late payment does not reflect my creditworthiness or commitment to repaying my debts. I hope that [Medical Provider/Collections Agency] will work with me to erase this mark from my credit reports.

Thank you very much for your consideration and understanding. I look forward to your positive response.

Sincerely,

[Your Name]

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If you have/had a good relationship with the medical provider that sent the account to healthcare collections, it could be worthwhile to reach out and appeal to them to ask that they instruct the collection agency to remove the debt from your credit reports. The medical providers hire these collection agencies, and they frequently force them to continue doing business.

Please remember to keep a copy of any letter you send, and consider sending it via certified mail so you have proof of delivery. Always consult with a financial advisor or legal professional if you're unsure about this process.

What if my health insurance is responsible for the medical debts sent to collections?

If your insurance company is responsible for your debt being sent to hospital collections, there are several steps you can take. Here are some general steps you can follow if you find yourself in this situation:

1. Communicate with Your Insurance Company: Contact your insurance company when you find out that your debt was sent to collection due to their error. Inform them about the situation and request that they resolve it. Ensure that you document all communications.

2. File a Claim: If your insurance company is unresponsive or denies they were at fault, you may need to file a formal claim. Be sure to provide all necessary documentation to support your claim.

3. Request the Debt Collector to Validate the Debt: Under the Fair Debt Collection Practices Act (FDCPA), you can request a debt validation letter from the collections agency. This letter outlines the amount owed, who you owe it to, and instructions on proceeding if you believe you do not owe the debt.

4. Involve the State Insurance Regulator: If the insurance company is still unresponsive or denies responsibility, you can file a complaint with your state's insurance regulator.

5. Legal Assistance: You might need legal help if all else fails. An attorney can provide you with options based on your specific situation.

Remember, the earlier you catch and act on the mistake, the better your chances of resolving it without significantly impacting your credit report. Also, always keep records of your medical bills and insurance payments, so you have evidence if an issue arises.

US Medical Collection Laws

Medical collection laws in the US are varied and complex.

1. Debt collectors are not permitted to report a medical bill to credit reporting companies without trying to collect the debt from you first.

2. Medical debt can be sent to a collection agency like any other debt. However, if it is owed to a non-profit hospital, they may be required to provide financial assistance to you before it is sent to collections.

3. Each state has a statute of limitations on medical debt, which sets a time limit for collectors to legally take someone to court over unpaid medical bills.

4. Bills under $500 will be excluded from credit reports, and unpaid medical debts will only appear after a year in collections, not six months.

5. The Fair Debt Collection and Practices Act (FDCPA) governs the actions collection agencies and law firms can take to collect a debt. Consumers have rights under this act that protect them against unlawful medical debt collection practices.

Do medical bills survive bankruptcy?

Medical debt can be discharged in bankruptcy, meaning it can be forgiven and the debtor is no longer responsible for paying it. Medical debt incurred before filing for bankruptcy is eliminated when the bankruptcy discharge is received, even if the medical bills are received after the bankruptcy case is filed. Medical debt is considered non-priority unsecured debt, which means it is dischargeable. Chapter 7 bankruptcy can wipe out medical debt and other unsecured debt.

Chapter 13 bankruptcy can also help with medical debt, but the debtor will need to pay back some or all of their debts over a period of three to five years. If medical debt is the only debt a person has, bankruptcy may not be the best choice because it can be hard on credit and may not be necessary for a small amount of debt. However, if a person has significant medical debt, bankruptcy can provide relief and a fresh start.

Medical Collection Fast Facts

1. Medical collections are debts incurred for medical services that have not been paid.

2. Medical collections are reported to credit bureaus and can hurt credit scores.

3. Medical collections are typically reported to the credit bureaus as “medical collection” or “medical debt.”

4. Usually, the medical provider or collection agency reports medical collections to the credit bureaus.

5. Medical collections can remain on a credit report for up to seven years.

6. The consumer can pay medical collections or negotiate with the creditor or collection agency.

7. Medical collections can be disputed with the credit bureaus if there is an error in the reporting.

8. Medical collections can be removed from a credit report if the debt is paid in full or settled.

9. A payment plan or debt settlement can pay off medical collections over time.

Medical collection statistics 2023 (Experian)

1. The average medical collection amount is $579.

2. The average medical collection age is 11.8 months.

3. The average medical collection balance is $1,811.

4. Approximately 19% of consumers have at least one medical collection on their credit report.

5. Approximately 8% of consumers have a medical collection of $1,000 or more.

6. Approximately 8% of consumers have a medical collection of $2,000 or more.

7. Approximately 5% of consumers have a medical collection of $3,000 or more.

8. Approximately 4% of consumers have a medical collection of $4,000 or more.

9. Approximately 3% of consumers have a medical collection of $5,000 or more.